Brandon Ng, senior associate at Houlihan Lokey, a global investment bank with expertise in mergers and acquisition, capital markets, financial restructuring and valuation, has worked with category-disrupting brands such as Cholula Foods Co., Tate’s Bake Shop, SkinnyPop, and My/Mo Mochi Ice Cream.
He says that emerging specialty food brands should consider the following when trying to reach large-scale success. (The opinions are Ng’s and not that of Houlihan Lokey.)
1. Be disciplined. “Every dollar of incremental growth is not created equal,” says Ng, who advises entrepreneurs to focus on developing their hero SKUs rather than on proliferating SKUs just to chase that additional dollar of growth. What this does is help you create a more profitable company as you gain economies of scale with your top 2-3 SKUs.
2. Don’t cheapen your brand. Food makers should steer clear of aggressive discounts that could cheapen their brand in the eyes of consumers. “Are the best brands like Apple and Lululemon ever discounted? No, because they have such strong brand equity that they don’t need to lower their prices. Never train your consumers to buy your product on discount.” Ng offered as example Tate’s Bake Shop, which was acquired by Mondelez. “Tate’s never gave the product away and has continued to maintain strong price point architecture as they expanded across different channels.”
3. Prove that your brand has mass appeal. While selling at Whole Foods is a good validator of your brand’s potential and resonance with millennial shoppers, which is a key consumer demographic, it is still not enough to prove that your brand is scalable, says Ng. “You need to develop strong case studies on velocities across customers and channels like a Walmart, Target, and/or Costco, as well to prove that this brand has substantial potential brand value, he added.
4. Show sustained growth over time. “Being able to grow your brand 30 percent plus over a couple of years is a good goal. But it is critical to do it the right way. More importantly, growing the right way historically will allow a brand to grow profitably in the long run without sacrificing profitability. With good margins, you will be able to continuously fuel growth through marketing without having to raise too much capital,” Ng says.
5. Market conditions don’t matter. “In a good market, a lot of things sell, and in a bad market, only the good things sell,” says Ng. “No one is able to perfectly time markets so keep your head down and try to build a fantastic business the right way.”
Related: Houlihan Lokey Offers Advice on Growing During COVID; Nestle, Inspire Brands Make Acquisitions.
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